What Is a Solo 401(k)? The One-Participant Plan Explained for 2026
Quick answer
A solo 401(k) is a one-participant 401(k) plan for a business owner with no employees, plus a spouse who works in the business. For 2026 you can contribute up to $24,500 as the employee and up to 25% of compensation as the employer, capped at $72,000 combined before catch-ups.
Solo 401(k) rules at a glance, 2026
| Rule | Detail |
|---|---|
| Official name | One-participant 401(k) plan (also sold as Solo-k, Uni-k or Individual 401(k)) |
| Who can open one | A business owner of any entity type with no employees; a spouse who works in the business can join the same plan |
| Who is excluded | Any business with common-law employees who meet the plan's eligibility rules; hire one and the plan must cover them |
| Employee deferral (2026) | $24,500, pre-tax or Roth |
| Employer contribution | Up to 25% of compensation (about 20% of net self-employment earnings after the SE-tax adjustment) |
| Combined cap (2026) | $72,000 before catch-ups |
| Catch-ups | $8,000 at age 50 plus ($80,000 total); $11,250 at ages 60 to 63 ($83,250 total) |
| Roth option | Yes, if the plan document includes a designated Roth account; deferrals share the one $24,500 limit |
| Plan loans | Permitted if the plan document allows: up to 50% of the vested balance or $50,000, whichever is less |
| Annual filing | Form 5500-EZ once plan assets reach $250,000 at year end, and in the plan's final year |
A solo 401k is not a special product, whatever the provider marketing implies. The IRS calls it a one-participant 401(k) plan: an ordinary, traditional 401(k) that happens to cover one person, or that person and their spouse. Because there are no employees to protect, the nondiscrimination testing that makes workplace plans expensive simply falls away. The catch is the mirror image: hire a common-law employee who meets the plan's eligibility rules and they must be included, at which point it is no longer a solo plan.
The appeal is the two-bucket contribution structure. Wearing your employee hat, you can defer up to $24,500 for 2026, pre-tax or Roth. Wearing your employer hat, you can add up to 25% of compensation, which works out to roughly 20% of net self-employment earnings once half of your self-employment tax and the contribution itself are stripped out of the base. The buckets together cannot exceed $72,000, rising to $80,000 with the age-50 catch-up and $83,250 at ages 60 to 63. The full arithmetic, including a worked example at $80,000 of profit, is in solo 401(k) contribution limits for 2026; check the current year's figures before funding, as the IRS adjusts them most autumns.
Two features the cheaper alternatives lack: a designated Roth account, if your plan document offers one, and plan loans of up to 50% of the vested balance or $50,000, whichever is less, repaid at least quarterly within five years. IRA-based plans such as the SEP cannot lend at all. The paperwork price is Form 5500-EZ, due annually once plan assets reach $250,000 at year end and again in the plan's final year regardless of size.
Whether the plan beats a SEP IRA comes down to that employee deferral, and the head-to-head is worked through in SEP IRA vs solo 401(k). The employee-side figures mirror the workplace numbers in 401(k) contribution limits for 2026, and the rest of our US reference shelf is at /us/guides.
This is general information for US readers, not personal advice. The figures are the IRS's published 2026 limits; the plan rules are from the IRS one-participant 401(k) page and Publication 560.
Frequently asked questions
What is the downside of a solo 401(k)?
Administration. You need a plan document, deferral elections made by year end, and a Form 5500-EZ filing once assets reach $250,000. And the plan stops being available the moment you hire a common-law employee who meets its eligibility rules; only a spouse working in the business is exempt.
Who cannot open a solo 401(k)?
Anyone whose business has common-law employees meeting the plan's eligibility conditions. It also needs earned income from your own business: W-2 wages from someone else's company do not qualify, though a side business alongside a day job can support its own solo 401(k).
What are the rules for a solo 401(k)?
It is a traditional 401(k) covering only the owner (and a working spouse), so the usual rules apply: the $24,500 deferral and $72,000 combined cap for 2026, catch-ups from age 50, and early-withdrawal rules. What falls away is nondiscrimination testing, because there are no employees to protect.
Can I take a loan from my solo 401(k)?
Yes, if your plan document permits loans. The IRS caps them at 50% of your vested balance or $50,000, whichever is less, repaid at least quarterly within five years (longer for a main home purchase). Miss the schedule and the balance is taxed as a distribution, possibly with the 10% early-distribution charge.
Can my spouse join my solo 401(k)?
Yes, provided they genuinely work in the business and are paid for it. A spouse gets their own full set of limits: their own $24,500 deferral, employer share, and catch-up. A working couple can shelter up to $144,000 in 2026 before catch-ups.
Is a solo 401(k) better than a SEP IRA?
At ordinary income levels, usually yes: both share the $72,000 cap for 2026, but only the solo 401(k) adds the $24,500 employee deferral, catch-ups, a widely available Roth option, and loans. The SEP wins on simplicity and survives hiring employees.
Sources
General information, not financial advice. Tax rules and figures can change; check the current position on irs.gov or ssa.gov before acting.